Employment Law Update – Ostrow v. Abacus Management

In the recently decided case of Ostrow v. Abacus Management, the British Columbia Supreme Court confirmed that a dismissed employee who is subject to a non-competition clause may be entitled to increased wrongful dismissal damages.

Mr. Ostrow was hired by Abacus in February 2011 as a specialist in U.S. taxation. He was dismissed nine months later. On termination, his employer reminded him verbally and in writing that he was subject to a restrictive covenant in his employment contract which restricted him from working for other employers for six months following termination.

At trial, Mr. Ostrow’s lawyer argued that the non-competition clause was a factor for the court to consider in determining the amount of severance to award. The court noted that there was minimal jurisprudence on the relationship between a non-competition clause in the employment contract and the length of reasonable notice, and considered two previous decisions by the British Columbia and Ontario courts.

After reviewing the evidence before it, the court concluded that it was reasonable for Mr. Ostrow to believe that he was bound by the non-competition clause, regardless whether Abacus had enforced such agreements in the past or would do so in Mr. Ostrow’s case. The court ultimately awarded Mr. Ostrow damages in lieu of notice in the amount of six months’ pay, and held that the existence of the non-competition clause in Mr. Ostrow’s employment contract had increased the period of reasonable notice. Notably, however, the court did not specify how much this factor increased the length of notice, so this remains an open question for legal counsel and the bench to answer.

Implications for Employers and Employees

Employers who wish to restrict former employees from competing with their business should weigh the impact of such competition against the potential for increased severance liability. A dismissed employee who is subject to a restrictive covenant should consider leveraging this clause when negotiating a fair termination package with her employer.

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